Innovation – a new look at an old concept

Politicians and industry leaders regularly cite innovation as crucial to Australia’s manufacturing future. But what forms does it take, and what can we do to harness our capacity for innovation? By Ray Keefe.

I’ve been developing new products intended to be made in Australia for more than 30 years. Innovation has always been a topic of interest for me. So let’s dive right in. Firstly, what is innovation?

The word ‘innovation’ comes from ‘nova’, which means new. There are several definitions around, most of them not really helpful. The one I use is “A change that is intended to be an improvement”. I like this definition because it covers cases where the new idea doesn’t work out and it focusses on why you want to innovate – because you are looking for an improvement of some kind. The number one area of innovation in the world today is business models, not technology, so this stuff applies to everything.

People are basically creative. You are already innovating, even if you don’t recognise it. And you are also better at it than you realise. In fact, there are ideas you have that are brilliant but never see the light of day because you don’t know how to get at them. Let’s look at why that is the case.

Many people regard innovation as something that resembles a magician pulling a rabbit out of a hat, which is quite unhelpful! It makes the process mystical and non-deterministic. To truly improve your ability to innovate, you need a better model than that. So let’s look at the two primary types of innovation: disruptive innovation, and incremental innovation.

Disruptive innovation

The term ‘disruptive innovation’ was popularised after Clayton Christensen wrote ‘The Innovator’s Dilemma’, an excellent book on the topic. If you haven’t read it, I recommend it. He looked at the hard disk industry and why companies that were strongly placed got easily beaten as the technology evolved. When we think of disruptive innovation, we think of game-changing breakthroughs that unseat incumbents. Current examples are Uber versus traditional taxis, AirBnB versus traditional accommodation providers, and Infrastructure-as-a-Service (IaaS) versus the internal IT department. In each case, the new market offering aims to erode the business case for the previous offering.

Disruption occurs when a new market offering emerges to challenge the existing, established offerings. The emerging offering is initially inadequate for even the lowest end of the market, but over time it improves and begins to take market share away from the established offering. Eventually it becomes capable of completely replacing the incumbent offering in all applications.

As good as this seems, far too much emphasis is placed on this type of innovation. It’s important, and do it if you can, but there is another and more important type of innovation.

Incremental innovation

Incremental innovation is the day-by-day small improvements that transform your position over time. Even if you have managed a disruptive innovation, once your disruption becomes obvious, others will go after you. You still need to engage in incremental innovation to keep ahead. Even if you haven’t been seriously disruptive, this gives you an edge over those who aren’t continually improving.

A good example is the 1% principle. If you improve by 1% a year, you are going backward because you probably aren’t even keeping up with GDP in a growing economy. If you improve by 1% a month, then you are at least ahead of the national growth curve and any sensible interest rate you can imagine. But if you improve at 1% a day, at the end of the year you are 37 times better! If you have a garden and the weeds are winning, this is why. They increase daily.

Most of us can’t sustain that level of incremental improvement, but this is where the sustainable gains come from. So how do we get there?

Brain 101

To answer that, we need to know how the brain works. The good news is you are smarter than you think. At a very simple level, the brain has two primary operating systems both running in parallel but only one getting our attention at any one moment: a linear thinking, rational, step-by-step mode; and a pattern-matching, parallel processing mode.

Most of us spend most of our time in the linear mode. As you are reading this, you are using the linear mode. As you use computers to process email and prepare documents or even as I write this, it’s all linear mode. When we are problem-solving, it is primarily linear mode. So here is the kicker. The linear mode at most uses 10% of our grey matter. The other 90% is used by the other mode and the autonomous functions (stuff like breathing and checking for danger). So the most creative and intelligent capabilities you have might not be where you think they are! For innovation, we want to engage the pattern-matching part of the brain as much as possible.

Here is a really good example of why. Elias Howe was an inventor. He wanted to invent the first automated sewing machine. He had worked for months without achieving his goal, even though he had other successful inventions. After a particularly frustrating day in 1845, he went to sleep and had a nightmare in which savages were thrusting spears into him. The spears had holes in the tips.

He awoke in a panic, but then, realising it was a dream, he started to analyse it. He noticed that the spears that had holes in the tips reminded him of the sewing needles he had been trying to automate the use of, but the holes were in the wrong spot. A sewing needle handled by a person has a sharp point at one end, a thin shaft, and a hole at the top where the thread is pulled through the cloth. He realised that the version in the dream with the hole near the point, would be able to be automated to create a lock stich sewing machine. Problem solved. His pattern-matching brain had communicated the solution he already had worked out to his linear mode using the dream. Who knows how long that answer had been sitting there?

That is an extreme case but it makes the point I wanted to make. Sometimes, you already have the breakthrough worked out. But it is in the other part of your brain. So how do you get at it?

In order to get to that other half, there are some strategies that are known to work quite well. All of them fall into the category of a pattern interrupt. There is a reason the most financially strong innovative companies have weird spaces in their buildings. These are ready sources of pattern interrupts. A short list of popular ways to achieve this is:

Use music (not songs but music itself – lyrics tend to pull us back to linear mode).

Humour – yes, even dad jokes.

Go to a different part of the building, especially if it is very different and not noisy.

Indoor atriums work really well, but most of us don’t have one of those.

Go outside and take a stroll, especially through picturesque surroundings.

Do something tactile.

Here is an example from a different discipline. Henri Poincare was a mathematician. When he was stumped with a problem, Henri wrote everything he knew on paper and went for a walk, returning when he had the answer.

I also give presentations on this topic to the Monash University Executive MBA program. It has been suggested by some students that I am giving my employees carte blanche to slack off. But I use this myself. Just last week I was struggling to solve a logic problem with a change in how a program needed to operate. So I went to our office thinking space, sat there for five minutes, and got the idea I needed. I went back and completed the software design and coding, and we shipped it to our customer after testing the next day. Magic or process?

And yes, we do have a specific area set up as a thinking space with lots of pattern break objects, textures and appearances.

Can we learn from overseas?

It is common to look at what others are doing and to copy what is already proven to work. So can we just copy overseas models and get an improvement?

From my perspective, the answer is no. Here is why. According to OECD statistics, Australia is last for collaboration, last for public research commercialisation, and in the bottom eighth for funding availability for new or expanding business ventures. In addition we are weak at business management; according to the BRW, the average Australian manager is at 30% of OECD average for management competence.

Moreover, we are often unable to start again after a failed venture, as under Australian law, bankruptcy takes you out of the game. The lean start-up failure rate in Silicon Valley is over 90%. But that is OK for them. They just declare bankruptcy, hand back the keys to the office, and start something new tomorrow. That works there, but think of the churn that creates in the marketplace. The average US millionaire has been bankrupt 3.7 times. That works for them, but not here.

Europe is using Open Innovation, but the lack of inter-business collaboration works against that idea. Open and uncollaborative are mutually exclusive positions.

But these statistics are also an area for opportunity. There is great opportunity for those who are competent at running their businesses and prepared to be collaborative. And this is where I see the really big areas for progress. If we become a bit more collaborative, a bit more flexible about business models, a bit more competent and use the strong innovation capability we have, then we will create new opportunities. This includes creating products together rather than just being a piece of someone else’s value stream.

There is a lot more I can say on this topic, but this is a quick introduction to how I think about it, some strategies for how to improve how you go about it and how you might take advantage of it. Hopefully it has given you a new way of looking at it so you can get even better results than you are getting now. And please, experiment a bit and work out what works best for you.

Innovation matters, and you are already better at it than you realise. In the OECD, Australia is ranked 13th of 81 for Innovation. There’s room for improvement, but we are already an A-grade innovation nation. It’s time to start harvesting the fruits of that capability.

Ray Keefe is the Managing Director of Successful Endeavours, a business that designs new electronics-based products that are intended to be manufactured in Australia.